Things to consider when buying or selling a commercial property at auction.
Are you considering buying or selling a commercial property at auction? Our commercial property team can assist – in this article Caroline Major sets out the key issues to be considered.
Buyers and sellers alike can find auctions an efficient way to acquire and dispose of commercial properties. However, there are key differences to be aware of between property auctions and the traditional method of transferring a property:
1. Method of Auction
The auction house will advise on which type of auction method is being used – whether in-house or online only. Under the traditional method, when the ‘hammer falls’ a buyer will usually pay a 10% deposit to the auctioneer, contracts are deemed exchanged and the buyer has around a month to complete the purchase. Under the modern method of auction, the buyer instead pays a non-refundable reservation fee (set by the auctioneer) with around two months to then exchange and complete. The auctioneer will also work with the seller to set a guide price and a reserve price for a property.
2. Auction Pack
At Else Solicitors we can assist sellers with gathering together all the relevant information to be made available to interested buyers in the auction pack prior to the auction. This tends to include Land Registry title documents, searches (especially a local authority search), an Energy Performance Certificate, copies of any leases, the form of transfer to the buyer, and replies to standard commercial property enquiries with supporting documents. It is vital that a buyer considers all the information provided before committing themselves to buy at auction. A seller is not obliged to provide any replies to enquiries after the auction, and if after the auction a buyer discovers a property is not suitable, they would forfeit their deposit and can lose significant sums in costs and wasted time. At Else we can also review and advise potential buyers on auction packs so they can make an informed decision on whether to bid for a property.
3. Auction Ts & Cs
A key part of any auction pack is the standard auction conditions, which are often those set by the Royal Institute of Chartered Surveyors, the auction-specific conditions included by the auctioneers, plus any special auction conditions which have been included in the contract pack. These set out the basis on which the property is being transferred, and also the contractual relationship between the buyer and the seller. For example, conditions can set out whether the Property is sold subject to any third-party rights, whether the buyer is responsible for all or part of a seller’s legal, auction and searches costs on completion, if VAT is payable on the sale price, obligations relating to contamination and insurance, and what if any contents are included in the sale. At Else we can assist sellers with drafting special conditions, and also advise buyers on how any special conditions will affect them.
Else can also assist sellers and buyers with the completion of auction sales, making sure that any relevant deadlines are met. It is important that buyers have a clear understanding of how to fund their purchase before committing to buy at auction. Failure to complete on time can lead to interest and additional costs having to be paid to a seller. After a certain date the seller can also retain the buyer’s deposit and walk away from the sale entirely.